For First Time, Pharmaceutical Distributor Faces Federal Criminal Charges Over Opioid Crisis

Law enforcement officials have long tried to stem the opioid crisis in America with criminal charges for street dealers and cartel kingpins who traffic in drugs like fentanyl and oxycodone.

Now, for the first time, federal authorities are bringing the same kind of felony drug-trafficking charges against a major pharmaceutical distributor and two of its former executives for their role in fanning the crisis.

Prosecutors said the former executives at the company, Rochester Drug Cooperative, ignored red flags and shipped tens of millions of oxycodone pills and fentanyl products to pharmacies they knew were distributing drugs illegally. Their sales soared, as did the compensation of the chief executive.

“Why did they do it?” asked Geoffrey S. Berman, the United States attorney in Manhattan, who announced the charges at a news conference. “Greed.”

Mr. Berman said the case was the first of its kind and vowed his office would “do everything in its power to combat this epidemic, from street-level dealers to the executives who illegally distribute drugs from their boardrooms.”

The government’s novel tactic was expected to reverberate through the pharmaceutical industry, where large corporations and senior executives have long escaped criminal culpability for the epidemic of overdoses from prescription painkillers, like oxycodone.

On Tuesday, prosecutors charged Rochester Drug Cooperative, or RDC, as a corporate entity with conspiring to distribute drugs, conspiracy to defraud the United States and failing to file suspicious order reports.

But the corporation entered into an agreement under which the government will hold off on prosecuting the company on the charges as long as it pays a $20 million fine, complies with the controlled substances law and submits to five years of supervision by an independent monitor.

As part of the agreement, however, the company, the nation’s sixth-largest distributor, admitted in court papers that it intentionally violated federal narcotics laws by shipping dangerous, highly addictive opioids to pharmacies, knowing that the prescription medicines were being sold and used illicitly.

“We made mistakes,” Jeff Eller, a spokesman for the company, said in a statement. “And RDC understands that these mistakes, directed by former management, have serious consequences.”

The two former company officials, Laurence F. Doud III and William Pietruszewski, were also charged with conspiring to distribute drugs and defrauding the government.

Mr. Pietruszewski, 53, of Oak Ridge, N.J., who was the chief compliance officer, was also charged with failing to file reports to the authorities about suspicious orders for controlled substances. He pleaded guilty last week and is cooperating with prosecutors.

Mr. Doud, 75, the former chief executive officer, pleaded not guilty late Tuesday in United States District Court in Manhattan and was released on a $500,000 bond. If convicted, Mr. Doud faces a mandatory 10-year minimum sentence and a maximum of life in prison.

The charging documents portray a company largely animated by Mr. Doud’s greed. As chief executive, he drove up the sales of oxycodone pills up ninefold over four years, from 4.7 million in 2012 to 42.2 million in 2016.

Fentanyl sales shot up even more over the same period, to 1.3 million doses from 63,000 doses, the documents said. And Mr. Doud’s compensation, tied to the sales, more than doubled, climbing to over $1.5 million.

Mr. Doud’s lawyer, Robert C. Gottlieb, said other executives at the company were scapegoating his client for their misdeeds. “Mr. Doud is being framed by others to cover up their wrongdoing,” Mr. Gottlieb said in a statement. “The government has it all wrong. He will fight these charges to his last breath and he will be vindicated.”

Overdoses on prescription opioids have taken more than 200,000 lives in the last two decades, according to the Centers for Disease Control and Prevention.

The charges stem from a two-year Drug Enforcement Administration investigation that began after the company violated the terms of a civil settlement. The company had admitted in the civil case that it had for years failed to report thousands of suspicious opioid orders from pharmacies, many of which flouted order limits and catered to doctors who ran pill mills.

At a news conference, Mr. Berman would not address whether other distributors were under investigation.

But Ray Donovan, who leads the New York office of the D.E.A., said the criminal charges against RDC should remind other distributors “of their role as gatekeepers of prescription medication.”

“The distribution of lifesaving medication is paramount to public health,” he said. “Similarly, so is identifying rogue members of the pharmaceutical and medical fields whose diversion contributes to the record-breaking drug overdoses in America.”

John Kinney, the acting chief executive of RDC, which is based in Rochester, N.Y., operates in 10 states and employs close to 200 people, appeared on behalf of the company on Tuesday morning before Judge Naomi Reice Buchwald of United States District Court in Manhattan.

Mr. Kinney signed the deferred prosecution agreement, in which the company effectively admitted committing the crimes. The agreement and a civil settlement, or consent decree, were approved by Judge Reice Buchwald.

Together, the agreement and the decree will allow the company to continue operating and set standards and oversight of its conduct, according to a court document.

State and federal authorities have struggled to hold pharmaceutical distributors accountable, and the lawsuits brought by state attorneys general say that despite signing consent decrees and paying fines, the companies have continued to ship thousands of doses of opioids to troubled pharmacies.

Mr. Doud last year sued RDC, claiming in court papers that the company had wrongfully fired him and that other executives were conspiring to blame him for the conduct that was the subject of the criminal investigation. The lawsuit and the criminal investigation were previously reported by The Democrat and Chronicle of the city of Rochester.